Management Service Agreement Private Equity

The business value of management and services is generally separate and structured as a separate administrative entity. The professional component (practice) is removed from the management and business services part with its own infrastructure and has its own value and use after the transaction. The presence of the BSO and possibly the transaction itself usually allows the professional unit (practice) to stay out of the PE transaction, but not always. The strategy behind the OSO is to build the infrastructure and total value of the company as a management entity. The creation of binary values creates future transaction advantages, i.e. the “second apple bite.” In addition, the professional component may remain intact and not be mixed with commercial and administrative services. With a lot of flexibility in the transaction structure, many PE agreements take into account a management entity and therefore include. Once called management services organizations (MSOs), they are now called business services organizations (BSOs). They have the characteristics of the traditional MSO, but they are more adaptable and versatile in the context of PE transactions. Overall, the creation of a BSO gives rise to a dual opportunity to create value and create post-transaction management and business services. In addition, it allows flexibility throughout the PE transaction. It promotes the growth and expansion of a robust administrative entity.

It often allows non-professionals (non-doctors) to have ownership shares in the BSO, both before and after the PE transaction. This action supports the maintenance of key management talent and allows NewCo to move forward much stronger and more efficiently for the future. Typically, after the transaction, the OSO is mandated by the PE/Practice consortium (“NewCo”) through a Management Services Agreement (MSA). The OSO therefore includes a separate assessment and an annex independent of the practice of the PE business. The separate unit (the BSO) may or may not be purchased, or the practice cannot be purchased instead of the BSO being the acquired unit.